Green hydrogen retreat threatens emissions targets

Around the globe, green hydrogen developers are cancelling their projects and reducing investments. This could lead to a longer-than-targeted reliance on fossil energy.

The sector's initial goals have been exposed as being unrealistic due to the challenges it faces.

Green hydrogen is prohibitively expensive for industries that are hard to electrify, like steelmaking and long distance transportation.

Jun Sasamura is the hydrogen manager for Westwood Global Energy. He said that the gap between European ambitions and actuality shows the magnitude of the industry's reset.

He said that only a fifth (or less) of all planned hydrogen projects in the European Union will be operational by the end decade. Westwood Global Energy data show that this translates to approximately 12 GW in production capacity compared to an EU target for 40 GW.

He added, "I don't think the EU 2030 target (hydrogen production), will be met in the current state."

Expectations Inflation

Many companies claim that the high costs of green hydrogen and the lack of demand have made many plans unprofitable.

Miguel Stilwell d'Andrade is the chief executive officer of Portuguese energy company EDP. He said: "Green hydrogen had been an inflated expectation which has now turned into a valley or disillusionment."

The demand is missing. In Spain and Portugal there are 400 million Euros ($464.2 Million) in subsidies for hydrogen, but we still need someone to purchase the hydrogen.

Ana Quelhas is the chief of EDP's Hydrogen and Co-Chair of the European Renewable Hydrogen Coalition. She said that although several projects are in advanced stages, they cannot be moved forward due to a lack buyers.

Iban Molina, a company executive from Spain, said that Iberdrola had put on hold plans to expand the capacity of a green hydrogen plant with an electrolyser capability of 20 MW, until it found buyers for more output.

In recent years, they are one of more than a dozen major companies who have cut back on spending or shelved certain projects in Europe, Asia and Australia.

Westwood Global Energy reports that companies had cancelled or delayed over a fifth (or more) of all European projects at the end of 2017.

Emma Woodward, at Aurora Energy Research said: "In the years 2020-2021, we had this vision of hydrogen being used in nearly every sector which hadn't yet been electrified.

"I believe we have realised that there are probably other, more commercially viable alternatives in many sectors." We may not need as much hydrogen initially thought.

Too Expensive

Many governments have supported the development of green hydrogen for many years. This is produced by electrolysis, which splits water using renewable electricity into hydrogen and oxygen.

Australia, Britain and Germany, as well as Japan, announced ambitious investment plans that they hoped would lower costs and create a green hydrogen industry that was profitable and would not need any support.

Minh Khoi Le is Rystad's director of hydrogen research.

Grey hydrogen is twice as costly as natural gas, as an example. This latter product is made from coal and natural gas, and is used in many industries including oil refining, ammonia production and methanol.

He added that costs could drop by 30-40% if the equipment prices fall and the supply chain is scaled up. Meanwhile, Woodward of Aurora and Sasamura of Westwood Global Energy said green hydrogen would not be competitive until then.

Wood Mackenzie, a consultancy, says that only 6 million metric tonnes per annum of low-carbon hydrogen is operational or being built in the world, including green and blue hydrogen, which are made from gas.

The consultancy estimates that 450 mtpa is required to achieve net zero emissions of greenhouse gases by 2050. The EU has pledged to reduce emissions by 55% by 2030 compared to 1990 levels, on the way to its 2050 goal.

The market is priced out of reach for buyers

The industry expected sectors like steel, oil refinement, cement, and transportation to be the first buyers. However, the demand that was expected has not materialised.

Dirostahl is a German die-forging company that makes parts for wind turbines and ships, as well as oil and gas drilling pipes. It is dependent on natural gas fired furnaces and is searching for an alternative.

Green hydrogen is too expensive. The fuel is not available for less than 150 euros per megawatt-hour (MWh), while natural gas costs between 30-35 euros/MWh.

"It just doesn't work." In practice, it's economic suicide. "We'd be totally uncompetitive", he said.

The high price of electrolysers for large-scale production is due to infrastructure bottlenecks, and the increased cost of energy resulting from new rules defining what constitutes "green hydrogen".

Some European countries have reduced their ambitions. Italy recently switched 600 million euros of post-pandemic funding from hydrogen to biomethane. In April, France reduced its 2030 target for hydrogen electrolysis by over 30% and Portugal cut its electrolysis ambitions by 45%.

Last year, the Dutch government made drastic cuts in the funds allocated for the development of green hydrogen and batteries. Instead, the climate fund was redirected to the construction of two nuclear power plants.

In Australia, several players have scaled back their projects or pulled out despite the government's support of more than A$8 Billion ($5.2 Billion).

Even projects that are moving forward face delays. Rystad analysts estimate that 99 percent of the A$100 billion projects announced in the next five-year period have not progressed beyond the concept stage or approval.

DIFFICULTIES IN INFRASTRUCTURE

Hydrogen is also difficult to store, as it requires tanks with high pressure and extremely low temperatures. It can also leak. This makes transporting hydrogen through the old gas pipelines, while waiting for new infrastructure, a risky proposition.

Spain hopes to build 2,600 km (1.615 miles) of hydrogen network, and connect it with another project. The trans-European link H2Med - from Iberian to Northwest Europe.

Arturo Gonzalo is the CEO of Spanish gas grid operator Enagas. He said that while the Spanish network will be operational by 2030, delays of up to two years may occur for other European infrastructure.

He said: "Infrastructure does not happen when the market is already booming; it's something that must be done for the market to burgeon." ($1 = 0.8617 euros) ($1 = 1.5340 Australian dollars)

(source: Reuters)